Question

Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%.

What is the yield to maturity at a current market price of

$822? Round your answer to two decimal places.
   %

$1,111? Round your answer to two decimal places.
   %

Answer 1

The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [$ 90+ ( $ 1,000- $ 822) / 5] /[( $ 1,000+ $822)/2] *100

= 125.60/ 911*100

= 13.7870472%

Note : Coupon = Rate * Face Value

= 9% * $ 1,000

= $ 90

Since this formula gives an approximate value, the financial calculators can be used alternatively.

where,

Par Value = $ 1,000

Market Price = $822

Annual rate = 9% and

Maturity in Years = 5 Years

Hence the yield to maturity = 14.21%

The correct answer is 14.21%

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The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [$ 90+ ( $ 1,000- $ 1,111) / 5] /[( $ 1,000+ $1,111 )/2] *100

= 67.80/ 1,055.50*100

= 6.423495973%

Note : Coupon = Rate * Face Value

= 9% * $ 1,000

= $ 90

Since this formula gives an approximate value, the financial calculators can be used alternatively.

where,

Par Value = $ 1,000

Market Price = $ 1,111

Annual rate = 9% and

Maturity in Years =5 Years

Hence the yield to maturity = 6.34%

The correct answer is 6.34%